Nautilus targets 2018 for undersea mining

VANCOUVER — It’s been a bounce-back 12 months for junior Nautilus Minerals (TSX: NUS; US-OTC: NSUMF), which has overcome a major sociopolitical hurdle to get back on track to develop the world’s first undersea mining operation at its Solwara 1 massive sulphide project, 30 km off the coastline of Papua New Guinea (PNG).

Nautilus suspended development at Solwara in early 2013 when it came to loggerheads with the PNG government over its partnership agreement. The company negotiated a deal last May, and received its first US$113-million payment in mid-December, which entitles the PNG government to a 15% stake in the project.

The company has signed a vessel charter and various supply orders to mine a seafloor massive sulphide (SMS) deposit 1,600 metres beneath the surface of the Bismarck Sea, and targets first production in early 2018.

Solwara hosts indicated resources of 1 million tonnes grading 7.2% copper, 5 grams gold per tonne, 23 grams silver and 0.4% zinc. Inferred resources add 1.5 million tonnes of 8.1% copper, 6.4 grams gold, 34 grams silver and 0.9% zinc.

“There have been plenty of highlights since our last update roughly six months ago. The major events include the special charter agreement and ship-building contract, which triggered the government payment and formation of our joint venture,” president and CEO Michael Johnston said during an investor update on April 14.

“The state has turned out to be a good partner for us, and that has continued through our recent meetings. We’re commissioning most of the major machinery, and it looks really fantastic,” he added.

Seafloor production is a staged process that calls for three pieces of machinery: a bulk cutter, auxiliary cutter and collecting machine.

The auxiliary cutter takes an initial run to prepare the seabed for the powerful bulk cutter. The two machines collect excavated material, while the collecting machine harvests the cut material by drawing in seawater slurry with internal pumps and pushing it through a flexible pipe to a subsea pump, and onto the production ship using a riser system.

Nautilus expects to receive all three vehicles by the end of the fourth quarter, along with its riser and ancillary equipment. Johnson added that designing and building the vessel is the “critical path” at Solwara, however, since it will affect the company’s production timeline.

Nautilus entered into an agreement for the charter of a production support vessel (PSV) in early November, which led to a contract with Fujian Mawei Shipbuilding in southeastern China. The PSV will serve as an operational base for the Solwara joint venture, and be chartered to Nautilus for at least five years for US$199,900 per day, with options to either extend the charter or buy the vessel at the end of the contract.

“All the companies we’ve awarded contracts to are significant names in their fields,” Johnston said. “Our goal is to continue that theme through the vessel build, and we’re basically aiming to produce a high-quality Chinese vessel hull with well-designed components around the thrusters, cargo handling, cranes and power units. These will all be designed by major players in the shipping industry.”

The company put down a US$10-million deposit on the vessel, with another US$18 million due when the charter contract begins. In an odd twist, Nautilus’ contractor Marine Assets — located in Dubai — was the victim of a cyberattack that resulted in the initial US$10 million being lost. Afterwards the company provided a conditional US$10-million down payment, with an investigation ongoing.

But the incident hasn’t impacted Nautilus’ timeline, and it still expects the vessel’s delivery by the end of 2017, which could lead to production. Johnson acknowledged that the company would have to raise more funds during the interim, and expects to publish updated capital and operating figures later this year.

“A couple of the key issues in determining those figures include: the government options, negotiations with our processing partner, and the design of the dewatering system,” Johnson continued. “With the vessel build ongoing in China there are clearly significant opportunities for us, and we’re in discussions for further partnership opportunities in Asia.”

The PNG government can earn another 15% in Solwara through a staged process. The state’s first 5% option is coming up in June.

The company will also return to exploration later this year, as it announced a contract for a seafloor program on its wholly owned portfolio in the Solomon Islands. The goal is to define SMS targets using multi-beam echo sounder and plume-hunting techniques. Plume hunting is a regional geochemical technique involving the discovery of metal-rich plumes of material that are ejected into the water column from prospective areas by natural geological processes.

“We’re really looking to get our exploration moving again and get the pipeline lined up to provide resources for our mining equipment. It’s important to look past Solwara I,” Johnston concluded. “We’re looking for new systems, and we’re in the process of organizing the program so that we can hit a lot of targets. We have some of the highest-quality commercial seafloor mapping equipment, outside of the military.”

Nautilus has traded within a 52-week window of 20¢ to 79¢, and is up 132%, or 29¢ year-on-year, at 51¢ per share at press time. The company has 445 million shares outstanding for a $228-million market capitalization, and reported working capital of $100 million to end 2014.